Keller: Innovation key to Cascade's growth: Part 1 of 2

Fred P. Keller launched injection molder Cascade Engineering Inc. in 1973, intending to create a firm that could provide both fiscal and social returns.

In Cascade's early days, Keller would spend mornings in the shop supervising production, then change into a suit and tie to begin calling on companies throughout the region in search of sales.

More than 30 years on, Cascade has annual sales of about $250 million - a 14.3 percent boost from 2003 - with customers in the automotive, office furniture and waste industries.

It also has continued to focus on its societal footprint, with a strong welfare-to-work program that brings new people into the workforce and donations of time and money to community efforts.

Its environmental emphasis tracked a 38 percent reduction in materials going to landfills in 2004 and boosted its use of post-consumer and scrap material to 9.3 percent from 7.5 percent in 2003. Keller also has taken his concerns for North American manufacturing to a national level as a member of the Department of Commerce's Manufacturing Council.

During a July 22 interview at Cascade's renovated technology center in Grand Rapids - built using Leadership in Energy and Environmental Design's ``green'' building concepts - Keller talked about changes in the auto supply community and how his firm and other businesses must respond.

Q: How have things changed for the auto industry and its suppliers since Cascade began?

A: In the 1970s, the challenge was simply being able to be a decent molder and grow, and how fast you could do that and respond to the needs of the customers. The processes were still being developed then. Process controls were a big thing, just trying to make sure you got a good-quality product with lower scrap.

During the 1980s, the whole area ramped up as we learned more from the Japanese threat, from the standpoint of how to organize our factories to be more efficient and effective. The thread through all that time was, of course, product development, engineering development and speed to market.

All of that went into hyperdrive in the '90s in terms of responding to a very rapidly growing market that had high demands and high expectations. The development times were shrinking. The quality demands were going up dramatically. Everything we kind of thought about in the '80s was happening in the '90s.

I think about today, and the cost pressures and the price pressures are enormous - and I mean both of those - costs going up and prices going down, to the point where the only survival route appears to be innovation.

Q: How would you define innovation?

A: If you're having a conversation about the effectiveness of your product - in our case about acoustics, about how we can balance the acoustics and make acoustics perform for them - we have a value proposition we can then talk about with our customers. It's those kinds of value propositions we have to have more of with our customers as opposed to less.

If you're having a molding conversation, you're going to find yourself faced with absolutely the lowest level. You might as well think about running your business for cash, as opposed to trying to grow it.

Q: How does a company's vision of its core strength come into play in a globally competitive market?

A: You have to have a deep understanding in yourself. That drives your ability to innovate for that particular customer or even within a segment of whichever customer you're dealing with. If you're an expert in that area, you can then innovate, which lowers your cost, which lowers your selling price, which also allows you to compete.

We, of course, have a tremendous amount of effort going on in terms of operational excellence and becoming leaner. That has a big impact. As you reduce your total cost not only in direct labor, but indirect labor and overhead, as it becomes more and more efficient, it comes down to the cost of materials. If you've got materials expertise, you can bring that down as well. Those are all things that we work on every day.

Add to that the idea of innovation and being able to provide and recognize that the half-life of innovative products today is shorter than it used to be. We need to continue to innovate and have that strong core issue. Other folks are responding to competition by maybe cutting out their innovation. I think that's relatively short-term thinking. Innovation is the key. You've got to be able to keep that core innovation going.

Q: How is that different than what the industry saw in the past?

A: With margins so thin today, obviously the percentage of utilization of equipment becomes a major factor in terms of profitability. If you see a drop-off in volume from a particular customer, you feel it instantly. You feel it more disproportionately because as you lose the percentage of production, it exacerbates your profitability dramatically. If you lose 10 percent of your production, you don't lose 10 percent of profitability, you lose 20 or 30 percent or more.

You've got to cover your overhead first. Your next percentages are your profit, and if you lose 10 or 20 percent of your production volume, that takes everything down.

Q: Can product development and innovation help to appeal to a wider variety of customers?

A: There is this combination of customer intimacy and product intimacy. In today's world, you really have to have both. It's not enough to say you'll be one or the other. You have to have very good product depth and understanding. Maybe in the past, we would have said that if you know your own product line very well, you can take it to any customer. Now you have to be careful about trying to be everything to everybody. Customer intimacy is very important.

We were involved early on with Herman Miller [Inc.]. Many of their suppliers would be interested in turning to them during the dips in the automotive cycle. They were tired of being treated nicely at some times and not so nicely at other times. We made the commitment to focusing on them as a customer, making sure that we treated them well at all times.

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